Swiss Franc Jumps | IFCM UAE
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Swiss Franc Jumps - 1.9.2011

Asian stocks rose, following broad gains in European and US markets yesterday, as investors were encouraged by some economic reports from the USA and China, which resulted to be favorable in comparison with expectations. Japane’s Nikkei Average index gained 1.05% in Asian trading hours today. On the contrary, treasuries declined, reflecting more positive investors’ sentiment and sending the benchmark 10-year bonds yield higher to 2.24%. Gold prices dropped yesterday as well, but are still enjoying near-record high levels above 1800 dollars per troy ounce. US Dollar The dollar strengthened against the euro, British pound and Japanese yen, but weakened against the Australian and Canadian dollars and the Swiss franc. Although the data from the USA was mixed yesterday, some reports exceeded expectations. Orders placed with US factories rose in July by the most in four months, showing a 2.4% increase, that was more than preliminary expectations of a 2% gain, the Commerce Department figures showed yesterday. Another report however showed an increase in the number of payrolls of only by 91000 in August, the lowest figure in three months, according to data from ADP Employer Services, following a revised 109000 gain in the prior month. Today is also expected to be rich in economic data. Analysts say the ISM’s manufacturing index may have shrunk in August for the first time since July 2009, falling below 50 to 48.5 from 50.9 in July. Although, the key figures from the labor market are expected to be released tomorrow, the dynamics of initial jobless claims today may be interesting as well. After climbing to 417000 two weeks before, applications for jobless benefits may have declined to 408000 last week, according to estimations. Nevertheless the situation in the United Stated continues to be complicated, as economic figures are showing. The Federal Reserve Bank of Atlanta President Dennis Lockhart said yesterday the central bank should be ready to consider more monetary easing even while it can’t be expected to eliminate some of the forces impeding economic growth. Euro The euro weakened yesterday against its major counterparts and remains under pressure in Asian trading hours today. The single currency failed to break its key technical resistance level at 1.4550 as investors were forced to sell the currency after several unfavorable economic reports were released yesterday, driving the euro to 1.4350 today. Together with a drop in German annual retail sales in July and a fall in the number of employed people, the European Union’s Eurostat agency reported the euro zone unemployment rate was steady at 10% in July but the number of jobless people rose again. As for employment figures by countries, Germany looks much better with a 7% unemployment rate, compared with the jobless rate in Spain at 21.2%, the highest in the euro zone, while Ireland’s moved up to 14.5% as both countries have introduced tough austerity measures. The euro zone inflation was stable in August, reinforcing the view that the European Central Bank won’t need to raise interest rates for some time. Annual inflation was steady at 2.5%, above the ECB’s medium-term target of just below 2%, but on the other hand it is below April’s 30-month high of 2.8%. Swiss Franc The Swiss franc strengthened sharply against its peers after the government announced yesterday its plan to stimulate economic growth. The Swiss government plans to spend 870 million francs, twice as lower as it was expected earlier, as part of an economic stimulus package to help to counter the impact of the franc’s “massive overvaluation.” The measures are mainly aimed to support tourism, exports and to preserve jobs, the government said in a statement. “The package supports the Swiss economy in an extraordinary situation,” Economy Minister Johann Schneider-Ammann said. “We’ll probably have to live with the strong franc for a longer period of time.” A strong franc, reaching its record highs against the dollar and the euro, forced the Swiss National Bank to lower borrowing costs to zero earlier this month and to boost liquidity to the money market in order to weaken the currency and protect the economy. Investors however were quite disappointed with the plan as they expected a more significant participation of the government. Today the second quarter GDP data was released, showing a 0.4% quarterly growth rate and a 2.3% annual rate, just as it was predicted. The franc lost about 200 basic points against the dollar, falling from above 0.8200 to below 0.8000. Canadian Dollar Canada’s economy shrank in the second quarter for the first time since the recession in 2008, as a relatively strong national currency boosted imports and curbed exports. Gross domestic product annual growth rate fell to minus 0.4% in the second quarter of the year, following a 3.6% gain in the first three months of the year. Imports of goods and services rose by 2.4%, led by a 6.6% increase in machinery and equipment shipments. Exports, meanwhile, which equaled a third of Canada’s economy in 2010, fell in the same period by 2.1%, the most in two years. Finance Minister Jim Flaherty, speaking to reporters said the economy “paused” in the second quarter. “As anticipated, the data published today show that the Canadian economy is still very fragile,” Flaherty said. “Global economic growth has been weak in recent months and as a trading nation, we must recognize that turmoil abroad will inevitably have an impact on our economy.” The Bank of Canada however remains rather optimistic, saying it expects growth rates of 2.8% in the third quarter and 2.9% in the fourth. Pair USD/CAD fell in Asian trading hours today and is traded near its one-month low 0.9724.
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